Mon, Dec 31, 2018 - Page 16 News List

Chinese rules seek to rein in regional bank expansion

Bloomberg

China has announced plans to rein in the expansion of lending by regional banks to areas beyond their home bases, the latest step policymakers have taken to defend against financial risk in the world’s second-biggest economy.

Those lenders, which include rural cooperatives, must have the proper licenses to provide financing beyond the region where they are based, or else must wind down those businesses, the China Banking and Insurance Regulatory Commission said in a statement on Saturday. That includes setting up units in regions where the banks have no branches.

Smaller regional lenders have become major drivers of shadow banking in China as they have sought ways to enhance profitability.

UBS Group AG last year issued a report highlighting how such lenders from the rust-belt region of northeastern China had used various shadow-banking products to extend their lending beyond their home provinces, thereby exposing themselves to a much wider spectrum of risk.

“This is in line with the campaign of stricter financial oversight,” said Gai Xinzhe (蓋新哲), a senior analyst at Sino Ocean Capital (遠洋資本) in Beijing. “They would find it very difficult to circumvent regulation via their old practices, such as setting up shadow-lending instruments in Beijing and Shanghai.”

Medium-sized and small financial institutions should stick to their positioning, “plowing through their local market” and providing quality financial services to the agricultural sector, and small and micro-sized businesses, the commission said in the statement.

In the meantime, overseas expansion of all banks would be scrutinized.

“Banks setting up overseas operations must obtain approvals from both domestic and overseas regulators,” the statement said. “Any business organization that has been established outside the territory of the People’s Republic of China, but has not been approved by the domestic or foreign regulatory authorities after communication shall be withdrawn in a safe and orderly manner.”

The regulator has granted a one-year grace period to banks until December next year for the rules to apply.

China has issued a number of directives on everything from excessive borrowing to speculation in equities to address risks in its financial system. By the end of last year, total borrowing had ballooned to about 265.85 percent of the size of the Chinese economy.

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